Profit-sharing bonus: conditions and calculation

The profit-sharing bonus is an employee savings scheme tied to the company’s results. Any company can choose to set it up. The amounts depend on agreements between the company and its employees. In some cases, however, the decision is made unilaterally.

What is profit-sharing?

Profit-sharing takes the form of a bonus paid to employees, proportional to the performance of the company that employs them. It motivates staff to reach growth targets and rewards them with cash bonuses.

The terms of the profit-sharing bonus are set either by a unilateral decision from the business owner or following an agreement between the company and its employees (or their representatives). These agreements are revised as the company evolves, as well as following exceptional events such as a company buyout or a merger with another entity.

More details in the French Labour Code: profit-sharing bonus, articles L3312-1 to L3312-9.

How do you set up a profit-sharing bonus?

Setting up profit-sharing is mandatory in companies with 50 or more employees and optional below that threshold. However, once it is set up, it must apply to all employees. A length-of-service condition may be required, but it cannot exceed 3 months.

In a company with fewer than 50 employees, a unilateral decision is enough, provided the company is not covered by an approved industry-wide agreement and has no union representative or social and economic committee. The agreement is set for a term of 1 to 5 years.

The terms of the profit-sharing bonus

Each company is free to define the terms of the profit-sharing bonus. However, they must include mandatory clauses:

• choice of calculation method and justification of the distribution criteria;
• form of profit-sharing;
• calculation method;
• staff information system;
• system for verifying that the agreement is being carried out;
• payment date;
• duration of the agreement, typically 3 years with tacit renewal;
• conditions for verifying payment;
• procedures for revising the profit-sharing bonus.

Calculating profit-sharing

The profit-sharing bonus calculation is based on the company’s results and performance. It can be set up so that each employee receives the same amount; it can be proportional to each person’s salary; it can depend on the employee’s attendance; or the calculation can combine all of these criteria.

The profit-sharing bonus is capped at €30,852 per employee. For the business owner and their collaborating spouse, the cap depends on the type of compensation.

When the amount is below the cap, the business owner may decide to pay a supplementary profit-sharing bonus, the amount of which is freely decided, provided it does not exceed the cap.

Setting up profit-sharing

The company gives each employee an employee savings booklet that summarizes the terms of profit-sharing. At the time of each payment, a statement — separate from the payslip — is given to the employee, indicating the amount of the profit-sharing bonus.

When an employee leaves the company, a summary of the amounts paid is provided to them.

Government oversight of profit-sharing bonus payments

The terms for paying profit-sharing bonuses are filed with the Ministry of Labour. They are checked both on substance and on form.

The benefits of profit-sharing

Companies and employees benefit from social and tax advantages linked to profit-sharing

Companies are exempt from social security contributions on these bonuses. They also benefit from certain tax advantages, including exemption from the apprenticeship tax and contributions to continuing education and construction funding, deduction from taxable profit, and the right to set up an investment reserve, under certain conditions.

The first benefit for the employee is receiving amounts that are either immediately available or placed in a savings plan. Otherwise, the amounts are subject to CSG and CRDS social contributions, as well as income tax, unless they are allocated to a PEE (Company Savings Plan) or a Perco (Collective Retirement Savings Plan) within 15 days of payment.

Paying profit-sharing into a PEE — Company Savings Plan

The PEE allows employees to benefit from tax-exempt savings, partly funded by the company’s profits. The funds become available after 5 years, though early release is possible.

Who is the PEE for?

The PEE is open to employees on permanent, fixed-term, or apprenticeship contracts. Non-employee executives can also benefit, provided they employ between 1 and 250 employees in addition to themselves. Finally, spouses can also open a PEE if they hold the status of collaborating spouse or associate spouse.

How does the PEE work?

The PEE is an account opened by the company. It is funded by the company itself, through the profit-sharing bonus, as well as by any one-off or scheduled personal payments from the employee. Payments into the PEE can go up to 25% of gross annual compensation, excluding profit-sharing under the mandatory “participation” scheme, transfers of assets from other plans, the profit-sharing bonus, and employer top-ups.

The company chooses the FCPEs (company mutual funds) in which it invests the funds. The employee can then choose based on their profile and the level of risk they are willing to take to grow their savings.

Availability of PEE savings

The savings are locked in for 5 years. However, the employee can benefit from early release under certain conditions: purchase of a primary residence, marriage, civil partnership (PACS), starting a business, birth of a third child, etc.

Social and tax advantages of the PEE

A profit-sharing bonus placed in a PEE is exempt from income tax and employee social security contributions. However, CSG and CRDS on earned income are excluded from this exemption.

Finally, capital gains and returns on PEE savings are exempt from tax, aside from social security deductions applicable to investment income.

Paying profit-sharing into a PERECO — Collective Company Retirement Savings Plan

Since October 1, 2020, the Retirement Savings Plan (PER) has replaced all other retirement savings products, including the PERCO used in companies. Its replacement is called the Collective Company Retirement Savings Plan, or PERECO.

This scheme allows savings to accumulate, available as a lump sum or annuity when the employee retires. These savings are tax-exempt.

Who is the PERECO for?

The PERECO is open to the same people as the PEE: employees, non-employee executives, and spouses under certain conditions.

How does the PERECO work?

The PERECO is funded by:

• the company’s profit-sharing bonus;
• transfers of assets from the PEE;
• any employer top-up contribution;
• the transfer of unused days off.

Availability of PERECO funds

The funds become available upon retirement, as a lump sum or annuity. Early release is possible, however: purchase of a primary residence, over-indebtedness, disability, end of unemployment benefits, etc.

Social and tax advantages of the PERECO

A profit-sharing bonus placed in the PERECO is exempt from income tax and employee social security contributions, except for CSG and CRDS on earned income.

Capital gains and returns on the savings are also exempt from tax, aside from social security deductions applicable to investment income.

Once retired, the PERECO savings withdrawn by the employee as a lump sum are partially taxable.